There may be 50 ways to lose your lover -- and when it comes to Social Security, there are quite a few ways to lose your benefits, too. Maybe not 50, but they're still problematic, since Social Security income is crucial for many retirees, and any decrease in benefits can really hurt.
Here are three ways you can lose some of that income. Heed these cautions in order to get the most out of Social Security.
1. Claiming your benefits too soon
The Social Security checks in your future are not fixed. Not only will they be adjusted for inflation, but there are also actions you can take to make them bigger or smaller. A key decision for most retirees is when to start collecting benefits -- because delaying can make your checks plumper.
For every year beyond your full retirement age that you delay receiving benefits, you'll increase their value by about 8%, until age 70. Delay from age 67 to 70 and you can end up with checks that are about 24% larger. If you start collecting early, your checks will be smaller. For every year before your full retirement age that you start collecting, your benefits shrink by about 7%. So if your full retirement age is 67 and you start collecting benefits at age 62, your checks will be about 30% smaller.
Delaying until age 70 is indeed a smart move for many people -- but not everyone. And starting to collect early isn't quite as punishing as it might seem. That's because the system is designed so that total benefits received are about the same no matter when you start collecting, if you have an typical life span as determined by Social Security's actuarial team. Even though checks that start arriving at age 62 will be considerably smaller, you'll receive many more of them. Also, if you're able to invest some of that money, you might end up doing as well or better than if you had waited.
2. By falling victim to a scammer
Another way to lose Social Security benefits is to fall for a scam or have your identity stolen. Scams related to Social Security are on the rise. According to one report, Social Security numbers are compromised more often than credit card numbers. In one scam, thieves who have gotten information such as your name, date of birth, and Social Security number will open a my Social Security account in your name and try to steal your benefits.
You can thwart that by opening up your own Social Security account before any identity thief does. It's actually a handy thing to do, because having an account means you can go to the Social Security Administration (SSA) website and take care of various business, including:
- See an estimate of your future benefits based on your current earnings record.
- Review the SSA's record of your past earnings, to make sure they're correct.
- Check the status of your application for benefits.
- Request a replacement Social Security card (if you meet certain criteria).
- Request a replacement Medicare card.
- Change your address.
- Start or change the direct depositing of your benefit payments.
- Get a replacement SSA-1099 or SSA-1042S form for tax purposes.
You can also apply to start receiving your benefits on the SSA website.
You can avoid lots of scams by not giving out any personal information to strangers who call you out of the blue or who send you an alarming email, suggesting that your benefits are being canceled or that your Social Security number has been suspended. Remember that businesses and public agencies typically won't call and ask you for personal information, and they often use snail mail rather than email for important communications.
3. If Social Security isn't bolstered
Finally, as the media likes to remind us, we may lose Social Security benefits if the program becomes insolvent. But that may not happen -- and if it does, it may not be quite as terrible as you think.
With people living longer in recent years, the ratio of workers paying into Social Security to retirees collecting benefits has been shrinking. So the Social Security trust funds, which have been running a surplus in every year since 1984, have long been taking in more money than they pay out. But those surpluses have been shrinking and are likely to stop around 2020. That doesn't mean they'll suddenly have no money, though.
At that point, the system can rely on incoming interest payments to make up the funding deficit -- for a while. According to a government estimate, Social Security funds are likely to see their reserves run dry around 2034 -- but only if no changes are made. If that happens, Social Security benefit checks won't stop arriving, but they will be smaller -- by around 23%.
Fortunately, Social Security can be strengthened, if those in Washington want to do so. For example, it's been estimated that fully 77% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052. (This wouldn't be the first tax increase, either. The tax rate was increased in 1983 to bolster the program ahead of many baby boomer retirements.)
Another possibility is taxing all of each worker's income, instead of just the first $132,900 of it. There's a cap on how much of our earnings are taxed for Social Security. That cap is $132,900 for 2019. Most of us are taxed on all our income, but if -- for example -- you are lucky enough to earn $1,132,900 in 2019, you'll pay no Social Security tax on $1 million of your income. Eliminating the earnings cap over a 10-year period, so that all of us are taxed on all our income, is estimated to be able to wipe out 71% of the trust fund shortfall.
It's worth learning more about Social Security so that you can get the most out of it. For starters, learn how you might increase your Social Security benefits.